The Meta Strategy for Dummies

This is a short read to summarize the meta strategy in simple terms for normal investors who are interested in a sophisticated, low maintenance tool to build portfolios. It is called „meta“, because it is a portfolio allocation method, that can be used for many different types of investment portfolios and strategies – I describe…

Building a Meta Strategy – Implementation

Bringing it all together let’s wrap up with some suggestions of how to implement the meta strategy in different kind of portfolios. To get up to speed read a short summary here or the whole series including the basic premises behind it starting here – for the concrete strategy only you can follow the three posts…

Building a Meta Strategy – Using Fundamental Indicators

The essential idea behind evaluating current and projected economic conditions for the meta strategy, is to map different allocation decisions to the signals of a core tactical asset allocation strategy. The weaker the economic development is judged to be, the stronger we react to technical market timing signals. Are there fundamental indicators pinpointing probable recessions…

Building a Meta Strategy – Using Technical Indicators

As a core component of our meta strategy we want to use a robust technical model. The way its signals are translated into concrete allocation decisions is influenced by projections about the fundamental state of the economy. Classic Tactical Asset Allocation Strategies Price based tactical asset allocation strategies are a popular way to systematically decide how much…

Building a Meta Strategy – The Traffic Light System

I have addressed the problems of using binary decisions – either being completely in or out of the market. In the real world we face continuously shifting probabilities rather than clear black and white states. The focus should be on creating a gradual adjustment between risk-on strategies, that create exceptional return in bull markets under low…

Building a Meta Strategy – Technical vs Fundamental Indicators

As ingredients for the meta strategy (aimed at scaling exposure to different assets and strategies according to market conditions), I will combine reliable fundamental and technical market timing tools to build a model that is more robust and nuanced than using just one method on its own. More on the foundations and objectives of the…

Building a Meta Strategy – The Foundation

After looking at the objectives for this strategy, let´s take a step back to lay out some foundations before diving into the details.  Are technical or fundamental indicators actually of practical use to tactically adapt a portfolio to market conditions? Useful to us as an investor would be to create a strategy that is able…

Building a Meta Strategy – Main Objective

To be a successful active investor, it is important to have a clear, big picture overview of our portfolio of assets and strategies. It is all too easy to get bogged down in the details of strategies and their execution only to be blindsided by a change in the market environment, which may turn an…

Who will be King – Fundamentals or Technicals?

Looking at equity markets at the beginning of the new year, specifically the S&P 500 as the most followed benchmark, I see an interesting divergence between the severely negative technical state of the market and the largely sound fundamental environment which only shows partial deterioration. Which side is likely to win the battle? Are technical indications…

The Hardest Trading Environment

Has 2018 actually been one of the most difficult trading environments one can encounter? Of course a 50% equity decline in a severe bear market, as we saw in 2000 or 2008, for example, looks much worse on paper, but a broadly diversified portfolio did not do nearly as bad. A substantial allocation to treasury bonds…

Trading Parabolic Moves (…after the fact)

There is nothing like a story of extraordinary gains to play havoc with investor psychology. Especially when it is founded on asset price moves of a magnitude that could mean life changing levels of profit – if you had only participated in it. Such parabolic irrational exuberances, that drive prices and valuations to unsustainable extremes, happen…

Short Option Overlay for Trend Positions

One of the most frustrating things about a long- and medium-term trend strategy (including the super long-term trend following idea of buying-and-holding market cap weighted indices) is that prices seem to spend most of the time going nowhere and often retrace to give back a portion of those nice book profits.   „The (buy-and-hold) investor…

Dealing with Sudden Market Regime Change

The realized return of different strategies and asset classes changes dramatically over time. Targeting these varying risk premia promises great opportunity – adjusting portfolio leverage at the right time has the potential to enhance profits in good times and curb losses in bad. The holy grail in investing would be to find ways to pinpoint…

Mistake Parade I

Large drawdowns are the most difficult time for an investor and trader. They are painful, but unavoidable when investing with the goal of high risk-adjusted returns. Return is based on taking risks and sometimes these risks are bound to materialize as strings of losses. This will happen regularly in a realm where each outcome is…

Focusing on Position Sizing

Rather than searching for the perfect strategy, the level of exposure to risk is a more important ingredient to successful investing. Every trading edge is going to be naturally constrained by the arbitrage activity of all market participants – extraordinary profit opportunities will be temporary at best. Asset classes, investment strategies (eg. value & momentum…